Spanish bank aims to launch platform for international payments this year

Julio Faura, head of research and development at Banco Santander, and Lindsey Argalas, Banco Santanders chief digital and innovation officer.
Photo:
Banco Santander

Banco Santander S.A. is exploring blockchain’s potential applications for banking transactions, including international payments for individuals and corporations.

Technology executives at the banking services firm are overseeing a lab in Madrid, where 20 employees are experimenting with how the online ledger technology could be used for international payments as well as compliance, audits and transactions within capital markets.

Santander, which has 133 million customers in Europe and the Americas, joins a long list of companiesexperimenting with blockchain, the technology best known as the record-keeping system behind cryptocurrencies.

A blockchain ledger allows participants to add blocks of information after each party runs algorithms to evaluate a proposed transaction.

If the parties agree that the transaction looks valid — identifying information matches the blockchain’s history and follows the rules created by the participants — then it will be approved, time-stamped and added to the chain. The data, encrypted and unchangeable, is always up-to-date on all participants’ systems.

Ms. Argalas said the bank could ensure that transactions between customers are faster, more accurate and secure through blockchain technology. Transactions can be more secure because blockchain is inherently decentralized and there’s no single point of failure.

Blockchain could be used in transactions between capital markets, where huge sums of money, a variety of stakeholders and lots of coordination are involved, said Julio Faura, Santander’s head of research and development for blockchain. The possibility to transact, trade and settle accounts in real-time or in shorter time cycles could also help lower costs, Mr. Faura said. Cross-border payments, for example, could be executed in near-real time versus having to wait several days for the transaction to clear.

Santander also is experimenting with how blockchain could facilitate micro-payments, where someone could pay a fraction of a cent for small pieces of digital content, for example. Today, that’s not possible with credit cards or traditional banking services. “You can create small fractions of money living on the blockchain and then transacting is so cheap that you can make it economical and efficient,” Mr. Faura said.

The bank also is “seriously exploring” how blockchain could be used to make better tools for compliance purposes such as anti-money laundering and counter-terrorism financing, Mr. Faura said.

There are currently no blockchain applications in full production yet at Santander. The company said it plans to launch a blockchain-based platform for international payments this year, in markets including Spain and the United Kingdom. First, though, the company has to prove that the technology could be integrated without creating new risk.

Blockchains appeal to banks because they can potentially reduce some costs, but the technology raises questions about how banks would handle proprietary information on such a transparent ledger, as WSJ has previously reported.

“It’s not just ‘yes, this technology works,’” Mr. Faura said. “We’re way beyond that phase. We’re also trying to prove that this technology can be used in a real setting.”